Indonesia's SOE Ministry to take over Inalum finally from Japan

The House of Representatives agreed on Tuesday to hand over PT Inalum`s management to the State-Owned Enterprises (SOE) Ministry following the government`s decision to acquire it after three years of negotiations with the Japanese government.

The House made the decision in its joint meeting with all parties, as the government decided not to extend the expired contract of PT Inalum, an aluminum joint venture between Indonesia and Japan in which Indonesia held 41.13 percent of the company`s shares and Japan owned 58.87 percent.

"House Commission VI and the government agree to hand over the management of Inalum to the State-Owned Enterprises Ministry based on the law," Commission VI Chairman Airlangga Hartarto said when reading a statement here on Tuesday night.

The House agreed to the results of negotiations carried out by The Asahan Project Negotiation Team, formed by the President in 2010.

"We hope the takeover process will be smooth so that the government will own 100 percent of PT Inalum`s stake beginning November 1, 2013," Hartarto said, referring to the contract of the joint venture firm, which will expire on October 31, 2013.

PT Indonesia Asahan Aluminium (Inalum) manufactures aluminum in Asahan, North Sumatra, with an annual production capacity of 230,000 - 240,000 tons.

The project began operating on January 6, 1976 based upon an agreement signed on July 7, 1975 and set to expire on October 31, 2013.

Japan, with 12 private Japanese firms in the joint venture, is the majority shareholder through Nippon Asahan Aluminium (NAA).

The House also agreed to transfer shares to Japan on behalf of the Indonesian government, based upon the results of the Indonesian negotiating team as contained in the Master Agreement with Japanese NAA.

Last year, then-Finance Minister Agus Martowardojo, who is now governor of the central bank, Bank Indonesia (BI), said that Japan`s Nippon Asahan Aluminium should no longer extend its cooperation contract. The Indonesian government has chosen not to extend the contract and is prepared to pay some US$424 million to Japan to control all Inalum shares. However, both sides still have different estimates of the value of Inalum assets.

Differences occur because NAA Japan, shareholder of PT Inalum, calculated the revaluation of assets, while the government, through the Finance and Development Comptroller, or BPKP, does not recognize revaluation.

Now the government has proposed a new book value calculation of US$558 million for acquiring the 58.87 percent stake that has to be paid to Nippon Asahan Aluminium Ltd.

Based on this agreement, the Inalum takeover process must be finished on October 31, 2013, at the latest.

In the meantime, Industry Minister MS Hidayat said that the US$558 million value was the final bid for Indonesia to offer in the next one to two days.

"The Indonesian government is inclined to settle the problem without going through the arbitration process. Although we have not reached a final deal, we still do not want to settle it on the arbitration table," he said.

Dahlan also declined to elaborate, when asked whether the government might later choose to turn Inalum into a state-owned company under his management.

He expressed confidence that by November 1, 2013 PT Inalum would return to Indonesia. Inalum is the only aluminum plant in Southeast Asia that has complete smelting facilities.